The GOP’s Interesting Payroll Tax Cut Proposal

December 1, 2011

This week, Republicans made a noticeable retreat on payroll tax cuts: after spending much of 2011 opposing any extension of the payroll tax cut that will expire this month, Senate minority leader Mitch McConnell switched positions Tuesday and said his caucus would consider it. This came after relentless attacks from Democrats, who accused Republicans of blocking help for struggling Americans. “Even those [Republicans] who question its value come to the conclusion that voting against it is a political loser,” one Washington analyst toldBloomberg yesterday. (I detailed the Republican retreat yesterday here).

I think there’s a compelling reason to believe that Republicans were reacting to a new national conversation by retreating: one that’s more focused on income inequality and less on austerity. For most of the summer, Republicans dismissed further payroll tax cuts and cited the deficit. The August debt ceiling deal forbid any extension. Now, they’ve changed their mind and think that’s not politically viable.

The Republican counter-proposal on payroll tax cuts, released yesterday, might further support this theory.

Democrats want to cut the payroll tax from the current 4.2 percent—which is already down from 6.2 percent—to an even lower 3.1 percent, which they say will save families an average of $1,500 per year. They would help pay for this relief with a surtax on incomes over $1 million. This has a clear populist theme: help out working families, and make the rich pay for it.

Republicans now say they want to preserve the payroll tax cut at 4.2 percent, and they would pay for it by continuing a federal payroll freeze until 2015, laying off 200,000 federal workers, and interestingly, by preventing millionaires and billionaires from getting federal benefits like food stamps and unemployment compensation.

The federal layoffs are awful public policy, and Democrats have rightly dismissed the proposal about taking unemployment checks away from millionaires as “not serious,” since no millionaires actually collect them. But it’s important to note that Republican messaging has switched—they are now proposing their own ideas for making millionaires and billionaires contribute, even if it’s in McConnell’s impish and empty way. David Hawkings, who covers Congress for CQ, writes today that the Republican proposals targeting top earners “are mostly symbolic ideas, to be sure, but they are a crystal-clear signal to the Democrats that their populist rhetoric is starting to have an effect, not only on the electorate but also on Republicans worried about their fortunes next fall.”

There are still plenty of important caveats here—getting Republicans to agree to a tax cut isn’t exactly a screaming progressive victory. The payroll tax cut, while helpful, is not an ideal method of stimulating the economy, since it generates less economic activity than extending unemployment, increasing food stamps, or aiding struggling states. It also can present long-term problems for the viability of Social Security.

But in ceding ground to Democrats on an idea for helping the economy, and proposing their own (twisted) way to punish top earners, Republicans are engaging in a new conversation that wouldn’t have happened over the summer. For once, Republicans have come to fight on Democratic turf. They’re still fighting, to be sure, but the conversation has changed. I’m not trying to be too Pollyannaish about the effect of both the Occupy movement and Democrats becoming much more aggressive, but I do think it’s creating some changes in Washington. Reports also indicate Republicans are now open to extending unemployment benefits, which would be even more helpful than extending payroll tax cuts.

McConnell’s maneuvers track with the advice of Republican messaging whiz Frank Luntz, who is counseling conservatives not to attack the 99 percent protesters and not to directly defend capitalism. In other words: they think the movement’s a little too strong right now, and they are disinclined to battle it outright.